Recs.
Updated
iTerm2 is a replacement for Terminal and the successor to iTerm. It works on Macs with Leopard, Snow Leopard, or Lion. Its focus is on performance, internationalization, and supporting innovative features that make your life better.
SpecsUpdate
Pros
Pro Any key can be mapped to any function
Using the Preferences Menu you can set up hotkeys to map virtually any action you can think of to a single key or a combination of them. This is extremely helpful as it allows you to use shortcuts to edit commands you are typing in the terminal and while most terminal emulators have shortcuts for this sort of thing, few of them let you define your own.
Cons
Con Keycodes are not passed through following Linux standards
If you come from a Linux terminal emulator (Gnome Terminal, Konsole...) and you rely on key-combos that are widely supported in those, porting the same functionality to iTerm is possible but will require a lot of research and configuration on your part, so account for a long painful adoption period.